LITTLE ROCK (AP) — Arkansas would stop paying for thousands of seniors in nursing homes, eliminate an insurance program for low-income workers and cut rates for providers to fill a $138 million shortfall in the state's Medicaid program, even if lawmakers support a proposal to boost funding, an official said Tuesday.

Department of Human Services Director John Selig told members of the Joint Budget Committee that the cuts are needed to make up for a deficit in the state share of its Medicaid program, which serves nearly 800,000 Arkansans. The shortfall grows to $460 million, when factoring in the amount of federal funding the state receives through a match.

Gov. Mike Beebe has proposed $160 million in new state money for the program, with $90 million coming from general revenue and $70 million from the state surplus to help. A lower than expected growth in the program's costs and other savings kept the shortfall lower than officials initially expected, Selig said.

The budget proposal also factors in $15 million that DHS says Medicaid will save next year through an effort to curb the program's costs by changing the way it pays for services.

"The good news is we have made some significant progress on our Medicaid shortfall," Selig told the panel as it opened its hearing on the department's budget. "We've still got quite a ways to go, and we're facing some very significant reductions in Medicaid."

The biggest cut would be eliminating the lowest level of nursing home care the state pays for seniors. The proposed reduction would save the state $35 million and would affect 10,000 to 15,000 seniors who need limited help with eating, moving around or going to the bathroom.

The agency proposed eliminating ARHealthNetworks, which was created in 2006 to provide health insurance to low-income workers through their employers. About 17,000 workers are enrolled in the program, which is funded by a combination of state and federal funds under Medicaid.

Selig said that many of the workers enrolled in the program could participate in a health insurance exchange that will be set up through the federal health care law or under the expansion of Medicaid eligibility that Beebe hopes lawmakers will approve. DHS also proposed eliminating all non-emergency dental services for adults under Medicaid.

Combined, the service eliminations or freezes are expected to affect roughly 75,000 people who are on Medicaid in the state.

DHS's proposal also called for freezing the rate hospitals, nursing home and other facilities receive from Medicaid, while other providers will see a 3 percent cut form the program. The Department is also proposing placing other parts of Medicaid under more scrutiny. For example, families will have to receive state approval to fill more than 6 prescriptions a month for their children under the ARKids First insurance program.

The latest budget figures came out a week after Republicans won control of the Arkansas Legislature for the first time since Reconstruction. GOP leaders have said they want to address the shortfall before taking up a proposal to expand Medicaid under the federal health care law.

Republican Rep. John Burris of Harrison called the figure "staggering," noting that lawmakers are expected to spend most of next year's session focusing on Medicaid.

"This is the elephant in the room we've all been waiting for," Burris said.

Sen. Jonathan Dismang, R-Beebe, complained that the proposed cuts didn't include policy changes GOP lawmakers have supported such as co-pays for some Arkansans on Medicaid. Selig said Beebe has recently asked the federal government how much flexibility the state would have for such changes.

"I wish when we saw this coming, because there's no way we didn't, and the money ran out and we knew it was going to run out, we had looked at those policy changes that individuals in this room had requested and been asking for since I've been here," Dismang said.

Beebe, a Democrat, supports expanding Medicaid's eligibility, which would add about 250,000 people to its rolls in the state, but has noted that its approval will require the support of 3/4th of the House and Senate. Under the federal law, the federal government agreed to pay the full tab for the Medicaid expansion when it begins in 2014. After three years, states must pay a gradually increasing share that tops out at 10 percent of the cost.

The U.S. Supreme Court's ruling in June upholding the federal overhaul gave states the right to opt out of the expansion. DHS estimated the state would save $44 million next year if it expanded Medicaid, though that figure is not factored into its proposed budget.

GOP leaders have generally opposed the expansion, but Selig suggested that the savings from it could help the state avoid at least the nursing home cuts.

"We have an option for avoiding the worst of these cuts, were we to choose expansion," Selig said. "You'd still have some reductions, but not the worst of them."